Managerial Accounting: E15-3 Comparative financial statements for Heritage Antiquing Services

Managerial Accounting: E15-3 Comparative financial statements for Heritage Antiquing Services

Managerial Accounting
Exercise 15-3 Financial Ratios for Short-Term Creditors
Comparative financial statements for Heritage Antiquing Services for the fiscal year ending December 31 appear on the following page. The company did not issue any new common or preferred stock during the year. A total of 600 thousand shares of common stock were outstanding. The interest rate on the bond payable was 10%, the income tax rate was 40%, and the dividend per share of common stock was $0.75. The market value of the company’s common stock at the end of the year was $26. All of the company’s sales are on account.
Heritage Antiquing Services
Comparative Balance Sheet
(dollars in thousands)
This Year Last Year
  Assets
  Current assets:
     Cash 1,080 1,210
     Accounts receivable, net 9,000 6,500
     Inventory 12,000 10,600
     Prepaid expenses 600 500
  Total current assets 22,680 18,810
  Property and equipment:
     Land 9,000 9,000
     Buildings and equipment, net 36,800 38,000
  Total property and equipment 45,800 47,000
  Total assets $68,480 $65,810
  Liabilities and Stockholders' Equity
  Current liabilities:
     Accounts payable 18,500 17,400
     Accrued payables 900 700
     Notes payable, short term - 100
  Total current liabilities 19,400 18,200
  Long-term liabilities:
     Bonds payable 8,000 8,000
  Total liabilities 27,400 26,200
  Stockholders' equity:
     Preferred stock 1,000 1,000
     Common stock 2,000 2,000
     Additional paid-in capital 4,000 4,000
       Total paid-in capital 7,000 7,000
       Retained earnings 34,080 32,610
  Total stockholders' equity 41,080 39,610
  Total liabilities and stockholders' equity $68,480 $65,810

Heritage Antiquing Services
Comparative Income Statement and Reconciliation
(dollars in thousands)
This Year Last Year
  Sales 66,000 64,000
  Cost of goods sold 43,000 42,000
  Gross margin 23,000 22,000
  Selling and administrative expenses:
  Selling expenses 11,500 11,000
  Administrative expenses 7,400 7,000
  Total selling and administrative expenses 18,900 18,000
  Net operating income 4,100 4,000
  Interest expense 800 800
  Net income before taxes 3,300 3,200
  Income taxes 1,320 1,280
  Net income 1,980 1,920
  Dividends to preferred stockholders 60 400
  Net income remaining for common stockholders 1,920 1,520
  Dividends to common stockholders 450 450
  Net income added to retained earnings 1,470 1,070
  Retained earnings, beginning of year 32,610 31,540
  Retained earnings, end of year $34,080 $32,610

Required:
Compute the following financial ratios for short-term creditors for this year:
1. Working capital (Enter your answer in thousand of dollars. Omit the "$" sign in your response.)
2. Current ratio (Round your answer to 2 decimal places)
3. Acid-test ratio. (Round your answer to 2 decimal places.)
4. Accounts receivable turnover. (Round your answer to 1 decimal place.)
6. Average collection period. (Use 365 days in a year. Round your intermediate calculations and final answer to 1 decimal place.)
6. Inventory turnover. (Round your answer to 1 decimal place.)
7. Average sale period. (Use 365 days in a year. Round your intermediate calculations and final answer to 1 decimal place.)
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